Thomas v. Westlake, D058531.

• Decision Date: 23 March 2012
• Docket Number: No. D058531.,D058531.
• Court: California Court of Appeals Court of Appeals
• Parties: John D. THOMAS, Plaintiff and Respondent, v. Steven M. WESTLAKE et al., Defendants and Appellants.

12 Cal. Daily Op. Serv. 3390

139 Cal.Rptr.3d 114

2012 Daily Journal D.A.R. 3819

204 Cal.App.4th 605

John D. THOMAS, Plaintiff and Respondent,

v.Steven M. WESTLAKE et al., Defendants and Appellants.

No. D058531.

Court of Appeal, Fourth District, Division 1, California.

March 23, 2012.

Edgerton & Weaver, Hermosa Beach, Chad E. Weaver and Elizabeth M. Del Cid for Defendants and Appellants.

Law Offices of Timothy C. Karen, Del Mar, and Timothy C. Karen for Plaintiff and Respondent.

IRION, J.

An investment advisor and related defendants appeal the order denying their petition to compel an investor's successor in interest to arbitrate claims alleging the defendants mismanaged the investor's accounts. The trial court denied the petition on the grounds that the claims against two of the six defendants were not subject to arbitration because those defendants were not parties to any arbitration agreement, and that there was a possibility of conflicting rulings on common questions of law or fact if arbitration of the claims against the other four defendants were ordered. We reverse.

IFACTUAL AND PROCEDURAL BACKGROUND

A. The Arbitration Agreements

Before her death, Katherine W. Thomas, an elderly widow, opened three investment accounts with defendants Ameriprise Financial Services, Inc. (AFSI), ¹ a subsidiary of Ameriprise Financial, Inc. (AFI). Defendant Stephen M. Westlake (erroneously sued as Steven M. Westlake), a registered representative of AFSI, acted as the securities broker and investment advisor for these accounts.

Katherine opened the first investment account in her capacity as trustee of the John W. and Katherine W. Thomas Family Trust (the Family Trust). A form Katherine signed when she opened this account acknowledged she had received and read the Brokerage Client Agreement and agreed to abide by its terms and conditions. The Brokerage Client Agreement contains the following arbitration clause:

“Any controversy arising out of, or relating to, my accounts, to transactions with you or your Broker and/or employees for me or to this agreement or the breach thereof, shall be settled by arbitration and conducted pursuant to the Federal Arbitration Act, before the American Arbitration Association or the National Association of Securities Dealers Inc., Chicago Stock Exchange Inc., the New York Stock Exchange, the American Stock Exchange to the extent you may be a member of such exchange or the Municipal Securities Rulemaking Board or the independent nonindustry arbitration forum as I may elect.”

Katherine later signed a Client Service Agreement for this account. The Client Service Agreement contains an arbitration clause nearly identical to the one in the Brokerage Client Agreement quoted above; the only differences are that the arbitration clause of the Client Service Agreement substitutes “Client's Service Account” for “my accounts” and “Sponsor or Sponsor's agents” for “you or your Broker.”

Katherine opened the second investment account in her individual capacity. Katherine again signed a Client Service Agreement, which contained an arbitration clause identical to the one contained in the Client Service Agreement pertaining to the first account.

Katherine opened the third investment account in her capacity as trustee of the Family Trust. As part of the transaction, Katherine signed a form acknowledging she had received and read the Brokerage Client Agreement and agreed to abide by its terms and conditions. The Brokerage Client Agreement for this third investment account contained the following arbitration clause:

“You agree that all controversies that may arise between us (including, but not limited to the brokerage account and any service or advice provided by a broker or representative), whether arising before, on or after the date this account is opened shall be determined by arbitration in accordance with the rules then prevailing of either the New York Stock Exchange, Inc., or the National Association of Securities Dealers, Inc., as you designate.” (Capitalization altered.)

B. The Complaint

After Katherine died, her son, plaintiff John D. Thomas, succeeded Katherine as trustee of the Family Trust; became her successor in interest (Code Civ. Proc., § 377.11); and filed this action. Initially, John sued only Westlake; Westlake's firm, Westlake, Grahl and Glover (WGG); and AFSI. He later amended the complaint to add as defendants AFI; and two insurance companies, IDS Life Insurance Company (IDS) and RiverSource Life Insurance Company (RiverSource), ² which allegedly sold Katherine certain insurance policies and annuities. The operative complaint asserts claims based on breach of fiduciary duty, negligence, fraud, money had and received, violations of the Consumers Legal Remedies Act ( Civ.Code, § 1750 et seq.) and elder abuse ( Welf. & Inst.Code, § 15600 et seq.). The gist of the complaint is that defendants conspired to “churn” Katherine's investment accounts by inducing her to make unsuitable investments that increased defendants' commissions and profits and substantially reduced the value of the accounts.

C. The Petition to Compel Arbitration

In response to the original complaint, Westlake, WGG and AFSI requested that John submit his claims to arbitration pursuant to the arbitration clauses in the account agreements Katherine signed, but John refused. Westlake, WGG and AFSI therefore petitioned the trial court to compel arbitration and also moved the court to stay proceedings until arbitration was completed. (See Code Civ. Proc., §§ 1281.2, 1281.4.) After John amended the complaint to add AFI, IDS and RiverSource as defendants, all defendants filed an amended petition to compel arbitration and again moved for a stay of proceedings. Defendants again sought an order “compelling [John] to submit all of his claims ... to binding arbitration”; and, in accordance with the terms of the various arbitration clauses authorizing AFSI to select a forum when the account holder does not do so, defendants specifically requested arbitration before the Financial Industry Regulatory Authority (FINRA).³

In support of the amended petition, defendants submitted a declaration from Westlake which attached copies of the arbitration provisions described in part I.A., ante. Defendants also submitted a declaration from their attorney which attached correspondence showing their attorney had asked John's attorney to stipulate to arbitration, but he refused.

John opposed the amended petition primarily on the grounds that (1) his claims against WGG, AFI, IDS and RiverSource are not subject to arbitration because these defendants are not signatories to any arbitration agreement, and may not arbitrate before FINRA because they are not members of FINRA or associated persons of members; and (2) if arbitration of his claims against Westlake and AFSI were ordered, there would be a possibility of conflicting rulings on common questions of law and fact. (See Code Civ. Proc., § 1281.2, subd. (c).) John also argued he did not have to arbitrate because this case is a “technical insurance dispute,” and as such is expressly excepted from arbitration by FINRA's rules.

In reply to John's opposition to the amended petition to compel arbitration, defendants submitted various printouts from FINRA's Web site, which purported to show that Westlake is a broker registered with AFSI; AFSI and IDS are members of FINRA; and “a sister company” of RiverSource is regulated by FINRA. Defendants also argued that they were all subject to and entitled to enforce the arbitration clauses, regardless of their membership in FINRA.

The trial court denied the amended petition to compel arbitration. In its minute order, the court noted that the contractual right to compel arbitration “may have to yield if there is an issue of law or fact common to the arbitration and a pending action or proceeding with a third party and there is a possibility of conflicting rulings thereon.” (See Code Civ. Proc., § 1281.2, subd. (c).) Because IDS and RiverSource were not parties to any of the arbitration agreements and there was no evidence they were third party beneficiaries entitled to enforce the agreements, the trial court concluded, “The difficulty of splitting up the claims coupled with the potential for inconsistent rulings mandates denial of this motion in total.” The court did not specifically address the parties' arguments concerning each defendant's status as a member of FINRA or as an associated person of a member.

IIDISCUSSION

Defendants contend the trial court erred in denying the amended petition to compel arbitration. They rely on theories of agency,⁴ third party beneficiary status, and equitable estoppel to argue that all defendants are entitled to enforce the arbitration provisions of the agreements Katherine signed, even though some defendants are not parties to any of those agreements; and they contend all of John's claims, including those involving the purchase of insurance policies from IDS and RiverSource, are within the scope of the arbitration provisions. John, of course, contends the trial court properly refused to order arbitration because some defendants have no contractual right to arbitration; and, if arbitration of the claims against the defendants with arbitration rights were ordered, there would be a possibility of conflicting rulings on common factual or legal issues. John alternatively contends this case is a “technical insurance dispute” that falls outside the scope of arbitrations conducted by FINRA. As we shall explain, defendants are entitled to an order compelling John to arbitrate all of his claims.

A. The Trial Court Erred by Relying on Code of Civil Procedure Section 1281.2, Subdivision (c) to Deny the Amended Petition to Compel Arbitration Because All Defendants Are Entitled to Enforce the Arbitration Clauses as Parties to the Agreements Containing the Clauses or as Agents of Such Parties

The primary issue on appeal is whether ...